KUALA LUMPUR (Oct 30): British American Tobacco (Malaysia) Bhd (BAT Malaysia) emerged as one of the top gainers after it posted better-than-expected results for the third quarter ended Sept 30, 2020.
The counter rose as much as 2.51% or 25 sen to RM10.20 in morning trades, making it the fourth top gainer.
At 10.03am, it pared some gains at RM10.12, still up 17 sen or 1.71%.
Kenanga Research’s Nikki Thang said in a note today, BAT Malaysia’s 9MFY20 core net profit of RM183.1 million came in above her expectation at 83%, due to sustained Dunhill sales and growth from its value for money (VFM) segment.
“Post-results, we bumped FY20/FY21 estimate earnings up by 9.8%/12.5%, respectively, by pencilling in a more generous assumption for product volumes growth,” said Thang.
Meanwhile, BAT Malaysia’s net dividend per share for FY20 and FY21 were also adjusted upwards accordingly to 80 sen and 82 sen, respectively, by maintaining a pay-out assumption of 94%.
Thang also raised the stock to outperform with a higher target price (TP) of RM11.05 (previously RM10.05), following the earnings upgrade.
While noting that the group’s outlook remains clouded by the raging illicit market, Thang opined that BAT Malaysia’s current valuations appear undemanding at 11.4 times of FY21 estimated price-to-earnings ratio.
“Coupled with a generous dividend yield of about 8%, the stock serves as an attractive dividend play,” said Thang
Meanwhile, Hong Leong Investment Bank Research’s analyst Gan Huan Wen also upgraded his call on BAT Malaysia from “sell” to a “hold” with an unchanged TP of RM9.
“While we remain pessimistic on BAT Malaysia’s earnings outlook from ongoing rampant illicit market activity and consumer down trading, we reckon BAT Malaysia’s share price has bottomed out,” said Gan in a note today.
Going forward, Gan continues to expect consumers to continue to down-trade to VFM brands, which has grown from 14% of the total legal market to more than 28% currently.